Sector Review: 20/50 and the World Cup

This weeks perusal of the SPDR Sector charts show 4 different reactions to the early week sell off. Events like this can show which areas of the market are stronger than others so it is important to take notice when they happen. Two simple indicators, the 20 day and 50 Simple Moving Averages (SMA), played a big role in this week’s activity. I noted earlier in the Macro Week in Review/Preview how these indicators played a part in the broad macro environment this week. Let’s see how this played out in the sectors. Having just come from my 5 year old’s soccer class it is easy to bucket these reactions similar to the reaction to the coaches instructions.

(As always you can see details of these individual charts and more on my twitter feed and on chartly.)

Star Players

These are the one’s, even at 5 years old seem to have a feel for what will happen next and can react before it happens to avoid some trouble. There are two sectors in this group, Energy Select Sector SPDR, XLE, and Consumer Discretionary Select Sector SPDR, XLY. Their charts are below.
Energy Select Sector SPDR, XLE

Consumer Discretionary Select Sector SPDR, XLY

Notice how both sectors reacted to the pullback like champs. They barely moved off of their recently established highs after finding support at the 20 day SMA and are now testing those highs again. The 50 day SMA does not even come into play for these sectors. They have a lot more going for them as well with rising Relative Strength Indexes (RSI) that barely moved to 50 and Moving Average Convergence Divergence (MACD) indicators that are moving more positive.

The Up and Comers

These kids have all the skills of the game but are just a bit slower. They react, not anticipate. This makes them good players but not quite as good as the stars. Two sectors Materials Select Sector SPDR, XLB, and Industrials Select Sector SPDR, XLI, fit into this category. Their charts below show that these sectors lost the 20 day SMA quickly and tested lower at the 50 day SMA before bouncing. They got knocked back a bit further but rebounded back above the 20 day SMA’s to end the week, and look health going forward.
Materials Select Sector SPDR, XLB

Industrials Select Sector SPDR, XLI

All of their SMA’s are pointing higher. The RSI’s are back above 50 and the negative MACD’s are waning. Now price can start to move higher and try to retake the highs, chasing to catch up to the leaders, XLE and XLY.

The Pack

These are the kids that are clearly interested in the game and have some skills but lack an understanding of strategy. This is the herd that follows the ball wherever it goes regardless of their position. There are three sectors in the pack, Technology Select Sector SPDR, XLK, Consumer Staples Select Sector SPDR, XLP and Health Care Select Sector SPDR, XLV. Below is the chart for XLK as an illustration.
Technology Select Sector SPDR, XLK

These sectors had been pulling back with the market prior to the past week and found support at or near the 50 day SMA. When the market bounced they bounced in synch back near the 20 day SMA. XLV fell a little further and XLP rose a little higher but all three sectors are following the ball rather than leading. Their RSI’s are just climbing above 50 and although their MACD’s are becoming less negative they all moved lower than the previous leading sectors.

The Vaguely Interested

These are the kids that read about soccer in a book, or watched a couple of minutes of the World Cup. They have some skills and can participate, but are just as happy running around the field pretending they are a chicken as kicking the ball, as if they are not part of the game. Two sectors fit into this group Financials Select Sector SPDR, XLF, Utilities Select Sector SPDR, XLU. There are differences between them as the XLF is just not participating with the market now after an attempt to break out and lead the market higher a couple of weeks ago. It is tangled in the SMA’s again. The XLU is a different story.
Utilities Select Sector SPDR, XLU

This sector was once a leader but has either lost interest or gotten sick and cannot perform up to its old standards. Maybe the coach just got tougher and pushed beyond the skill level. XLU lost the 20SMA two weeks ago and the 50 day SMA prior to this past week. It is now looking for support at the 100SMA as it moves down. The RSI has not made an attempt to rise back toward the mid line either. This sector is weak.

The Goal

Keep this view of relative strength in mind as you prepare for the coming week.  There are clear winning sectors and other places where putting your money is a waste of time or a mistake for now.

To answer all the questions in advance, I wish my son were a Star Player, but alas he is the chicken running around the field. I’m not worried, as a first year swimmer I had to pull up my bathing suit out of every flip turn and went on to captain my college team.  If his interest doesn’t change that is alright too, how many 5 year olds can look at a chart and determine the trend. Nerds win in the long run.

Trade well!

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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